FEDERAL COURT OF AUSTRALIA COSTS - application for security for costs - whether broad discretion under s 56 of the Federal Court of Australia Act 1976 (Cth) should be exercised. Federal Court of Australia Act 1976 (Cth) - s 56 Trade Practices Act 1974 (Cth) - s 51A, s 52 Federal Court Rules - O 28 r 3(1)(b) PETER SYKES & Ors -v- RESERVE BANK OF AUSTRALIA NG 1116 of 1997 FOSTER J 11 MAY 1998 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 1116 of 1997 BETWEEN: peter sykes & Ors Applicants AND: reserve bank of australia Respondent JUDGE: FOSTER J DATE OF ORDER: 11 MAY 1998 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The application be dismissed with costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 1116 of 1997 BETWEEN: peter sykes & Ors Applicants AND: reserve bank of australia Respondent JUDGE: FOSTER J DATE: 11 MAY 1998 PLACE: SYDNEY REASONS FOR JUDGMENT (Extempore) This is an application brought by way of notice of motion by the respondent, the Reserve Bank of Australia ("the Bank") seeking an order from this Court granting to the Bank security for the costs of the appeal brought by the appellants. Should security be ordered, an ancillary order is sought seeking a stay of the appeal until the security order is complied with. The appellants consist of a corporation, Polybank Pty Limited and two natural persons, Peter Sykes and his wife, Beverley May Sykes. It is apparent that for practical purposes they constitute the company and that the questions to be decided on this notice of motion do not need to be approached separately because one of the respondents to the motion is a corporation and the others are natural persons. Indeed, it has not been suggested that I should make any distinction between those persons in the approach that I should take. The notice of motion is brought in respect of an appeal which is being brought from a decision of his Honour, Tamberlin J, of this Court, given on 5 December 1997. I shall refer briefly later in these reasons to the nature of the case that was there made. Before doing so, I will deal with one argument that has been put on behalf of the respondents to the notice of motion. This was based upon the fact that, at the hearing before Tamberlin J, or prior to that hearing, no application was made by the Bank for security for costs in relation to that hearing. It has been put to me that I should take that fact into account on the basis that it evinces a general delay in the bringing of the application for security for costs which I am now considering. This application was, in fact, brought on 22 January this year. I do not consider that it is reasonable to take into account, in determining whether there has been significant delay in the bringing of this notice of motion for security, that no similar notice of motion was brought in respect to the hearing at first instance. I consider Mr Rowe's submission that I should have regard only to whether there has been any significant delay in bringing the notice of motion for security in relation to the appeal, to be correct. In my view, the absence of any security being sought for the trial at first instance has no relevance to that question. So far as any question of delay is concerned, I am satisfied that the Bank has brought this notice of motion with reasonable expedition in relation to the appeal. That, however, deals with only one of the matters that have been argued before me. The case before Tamberlin J was one based upon misleading and deceptive conduct pursuant to ss 51A and 52 of the Trade Practices Act 1974 (Cth). (Other sections were relied upon but I do not find it necessary to refer to them in these short reasons.) The alleged misleading conduct, as appears sufficiently from a brief consideration of his Honour's judgment and from the submissions that have been put to me, amounted to the making of predictive representations. These representations refer to the anticipated dates upon which particular note issues would be made. As part of their case the applicants said they relied upon the accuracy of those predicted dates in making certain essential decisions in relation to their own business, and that reliance upon those predicted dates, and the failure of the issues of notes to eventuate as predicted, have occasioned damage to the applicants. His Honour did not have to enter into consideration of reliance or quantification of damage; however, it is apparent that the claim the applicants sought to make was in the order of $550,000 and I am informed that this is the approximate claim that will be advanced in the appeal. The proceedings before his Honour occupied some five hearing days and a subsequent day of oral argument after written submissions. I have particularly asked counsel for the appellants, having regard to the reasonably extensive nature of the notice of appeal, what the thrust of the appeal will be. Of course, what I now say is not intended to place any restrictions upon the way in which the appeal may be argued, but it appears that the main thrust of the appeal will be that his Honour erred in law in his considerations of the onus cast upon the Bank by the invocation of s 51A. That onus relates to the satisfying of the Court that there were reasonable grounds for the making of the predictive representations. I have been taken to portions of his Honour's judgment dealing with this matter. Indeed, they arise in an associated part of his judgment dealing with a claim in negligence. However, it is clear enough that the considerations would also apply to the arguments to be adduced in respect of s 51A. It has been put that his Honour, in effect, reversed the onus by requiring that the applicants indicate positively that a particular production run should have been taken, whereas, having regard to the onus cast by s 51A, the negativing of that proposition really lay upon the Bank. Certain evidence was given in relation to the production run in question. I have been taken to it in evidence and have considered it. It is, of course, trite to say that a court considering an application of this kind does not, cannot, and should not, enter into any definitive examination of the prospects of success of the appeal. It is of significance, however, that grounds for an appeal have been presented and have been supported succinctly in argument before me. It removes from contention any suggestion that the appeal is one necessarily doomed and, therefore, one that carried with it the consequence that the Bank would be faced with the prospect of bearing its own costs in an appeal which had no prospect of success. The application is brought under s 56 of the Federal Court of Australia Act 1976 (Cth). That section gives to the Court a wide discretion to order security for costs. That wide discretion, of course, cannot be cut down by the rules of court. However, it is perhaps of significance to note that the Bank does not rely upon O 28 r 3(1)(b) of the Federal Court Rules, namely, it is not submitting that the appellants are suing not for their own benefit, but for the benefit of some other person, and that there is reason to believe that the appellants would be unable to pay the costs of the respondent if ordered to do so. Thus, it is not put that the appellants are, in effect, suing for the benefit of other parties. It is, however, acknowledged that if they are unsuccessful in this appeal they will not be able to pay the costs of the Bank. I say that in the context that the evidence clearly establishes that they are, for the purposes of this application, to be regarded as impecunious appellants. The case made by the Bank in this application does not depend, therefore, upon the appellants being in the position of what is sometimes described as nominal plaintiffs, that is, plaintiffs suing simply on behalf of someone in whose shoes they, for practical purposes, stand. Whilst that established principle is not relied upon, a broader submission is made. It is said that there are certain very substantial creditors of the appellants who will stand to benefit if the appellants are successful in this appeal. In round figures, it appears that some $208,000 is owed to such creditors, two of which are mentioned in the affidavits and who are obviously entities well able to provide security for costs. A third entity has been referred to in argument, although it is not named as such in the affidavits, and I can assume, for the purpose of what I am now considering, that that entity would be in a position, if, in fact, it were a creditor of the appellants, to provide some assistance by way of security. The first thing that must be noted, however, apart from what I have said about there being no argument put that those creditors are in any way promoting or instigating this appeal, is that if the appeal is successful, and if ultimately the appellants achieve an award of damages, there will be, on the figures that I have made reference to, a very significant surplus or excess available for compensation to the appellants over and above the payments that they would then be in a position to make to their creditors. It is, of course, a significant thing that persons who have creditors and who sue to recover moneys which will go towards the payment of their debts should be allowed to bring such actions. Any reputable person or reputable corporation wants to pay its creditors, and if it is being prevented from doing so because it has not been paid monies owing to it by a debtor, then it is only appropriate that it bring action to recover the debt and enable it, thereby, to pay its creditors. There was no attempt made by the Bank, for reasons that were advanced to me, to tax a bill of costs against the present appellants after the completion of the proceedings at first instance. That is one path that is available to a respondent in the position of the Bank in these proceedings. A judgment debt would be obtained and then, of course, there would be a prospect of bankruptcy proceedings, the appointment of a trustee and the like, all of which would enable some control to be taken in respect of this appeal. That course has not been followed. Instead the Bank has taken the action of seeking, in effect, that apparently legitimate creditors should pay into Court an amount of money for the purpose of providing security for its costs in the appeal. I have not been taken to any authority which indicates that it is appropriate for the Court to order security in this way. Another principle regularly invoked and applied is the principle that the granting of security should not be undertaken where the effect of that grant would be to stifle an action which is both arguable and legitimately instituted. I have already made some observations as to the nature and grounds of the appeal and I shall not repeat them here. It seems to me that it is sufficiently clearly established in this case that if security for costs were ordered and the security were not forthcoming, the effect would be to prevent these appellants seeking to have their appeal heard. In all the circumstances and in the exercise of my discretion I do not propose to take that course, I therefore dismiss this notice of motion with costs. I certify that this and the preceding four (4) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster. Associate: Dated: 11 May 1998 Counsel for the Applicant: Mr M.A. Ashhurst Solicitor for the Applicant: Packer & Austin Counsel for the Respondent: Mr V.R.W. Gray Solicitor for the Respondent: Reserve Bank of Australia Date of Hearing: 11 May 1998 Date of Judgment: 11 May 1998